Financing growth when the spending comes before the sales

On 4 September 2013 Björn Lindvall examined the Bank of England’s Funding for Lending Scheme and asked what happened to expanding SMEs when bank lending was weak. Larger companies could tap bond markets. For smaller businesses his article pointed to direct lenders, peer-to-peer platforms and other sources of private capital.

An order book can grow faster than cash

Suppose a manufacturer wins an order requiring a £90,000 machine and £35,000 in materials. Its customer pays 60 days after delivery. The machine may generate cash across many future orders. The materials for the first order create a shorter funding need that ends when the customer pays. Combining them into one loan can conceal the date when cash is tightest.

Record the machine quote, delivery date, order value, customer terms, supplier terms and the lowest cash balance in a delayed-payment case. Model scheduled repayments for the equipment separately from a facility used and repaid as invoices clear.

The growth finance guide sets out a project funding calculation. The working capital guide addresses the recurring gap between delivery and collection.